India disallows Reliance from cost recovery of $2.4 bln - minister

NEW DELHI, July 14 (Reuters) - India has disallowed Reliance
Industries Ltd from recovering $2.376 billion invested
to develop offshore gas fields in the D6 block on the country's
east coast as output has fallen drastically and is way below the
promised volumes, the oil minister said.

Under India's exploration policy, the government allows
companies to first recover their costs from oil and gas revenue,
and subsequently share profits with the government.

Reliance had set up facilities to produce 80 million cubic
metres a day (mmscmd), but actual gas production has been much
lower, resulting in underutilisation and creation of surplus
inventories, Dharmendra Pradhan told lawmakers in a written
reply.

He said notices have been issued to Reliance, which is the
block operator, for disallowance of cost recovery.

The D1 and D3 gas fields in the block were to produce at a
peak rate of 80 mmscmd in 2012-13 but actual production never
reached that level. In April-June this year, production from the
two fields averaged just 8.05 mmscmd, he said.

The government disallowed Reliance to recover $1.797 billion
as on March 2013, which had risen to $2.376 billion by March
2014, Pradhan said.

Because of disallowance of cost recovery to Reliance and its
partners BP and Niko Resources, the government
has raised an additional claim of $195 million as profit
petroleum for a period up to March 31, 2014, Pradhan said.

Reliance had said earlier that unexpected geology caused the
decline in output and drilling more wells would not help, but
this has been rejected by the oil ministry, which believes
output has fallen due to non-drilling of the promised number of
wells.

"The issue is currently under arbitration," he said.
(Reporting by Nidhi Verma; Editing by Prateek Chatterjee)